by Russell Cummings | Aug 8, 2010 | Business Tips, Finance, Marketing, Planning, Strategy
NEAT Analysis
We have developed a simple methodology for looking at our marketing and business development options and have called it NEAT, which stands for:
- Number of Customers
- Efficiency %
- Average Sale $
- Transaction frequency
Now, N x E x A x T = Profit
You can look at NEAT from a whole business perspective or on a business unit basis, if required. It is usually done on an annual basis.
Number of Customers simply stands for the number of Active Customers in your business. In most businesses active customers will be those that have purchased off you in the last year or two. In high turnover businesses , eg. NewsAgents, active customers could be those that have purchased off you in the last 3 months. In the building industry, it could be people that have purchased off you in the last 5 to 10 years.
In any case, count or estimate the number of active customers in your business. You can usually get this information from your bookkeeping systems although in a retail environment this maybe difficult, so estimate the number.
Efficiency is usually measured as Net Profit/Sales and expressed as a percentage. For example: if you make $100,000 Net profit on $500,000 worth of sales then your E is 20%.
Average Sale. This is an important measure because it looks at the average $ spend per sale. To determine what this is, look to your records eg. bookkeeping systems or cash registers. From a bookkeeping system, simply divide the Total Sales by the number of Invoices and cash sales. From your cash register, record the total sales $ for a period and count up the number of actual sales in the same period and divide. So how much are your customers currently spending each time they do business with you?
Transaction Frequency. Quite simply, how many times do your customers buy from you in a year? To work this out divide the number of invoices or sales calculated above by the number of active Customers. If you are in a high frequency business, this could be a number between 50 and 100 (once or twice a week) or a low frequency business eg. building this transaction figure could be 0.1 (once every 10 years).
Working out the NEAT Values for your Business
As mentioned above, multiplying your NEAT components together should give you a measure of your profit. If we break down the basic components we can see the components of sales and efficiency.
N x E x A x T = Profit
(N x A x T) x E% = Profit
Sales x Efficiency% = Profit
( Customers x Sales x Transactions) x Efficiency % = Profit ( 1 Transaction Customers )
Now, complete the calculation using the figures for your business: For example: if we have: 200 customers, sales of $1,000,000pa.; Net Profit Margin of 15% of sales; 5,000 invoices (transactions) per annum, then your NEAT calculation would look as follows:
N = 200 Active Customers
A = Average Sale
= Sales/Transactions = 1,000,000/5,000 = $200/ Sale
T = Transaction Frequency = Transactions/Customers
= 5,000/200 = 25 per Customer per annum
E % = Efficiency % = 15%
Check that: N x A x T = Total Sales (200 x $200 x 25 = $1,000,000)
Check that: Sales x E% = Profit ($1,000,000 x 15% = $150,000)
This is all very interesting but how do I use it?
Once you have your NEAT components, you can start to analyse your business. There are 6 easy steps:
Step #1: Start with N (Customers). How many active Customers do we have? What proportion of our total customer list are active? For example: if we have 1,000 Customers on file over the last 10 years, but only 200 are active then only 20% of our Customers are active. How can we rejuvenate the 80%? How can we attract more Customers? How do we stop the “churn” in Customers? How many of our active customers are “A Class” customers? How many are “C Class”? How will you find more A Class? Brainstorm your actions and look at the impact you could have on N. Write down the new N number.
Step #2: Improve Efficiency %. Efficiency % is calculated by profit over sales. The difference between sales and profit is composed of costs. What can we do to reduce our costs? How can we become more efficient? How can we reduce our Variable Costs? What can we do about overheads and finance costs? How does your business compare with other businesses in the same industry? Brainstorm your options and calculate the impact these will have on your efficiency %. Write this number down.
Step #3: Increase Average Sale. Look at your average sale. How does this compare with what you thought your average sale was? Most businesses over-estimate their average sale figure. How can we improve this figure? Look at adjusting your pricing? What would have to change about your goods and services for you to command a higher price? How can you package products and services to add value? How can you up-sell to better quality, higher margin goods? Can you cross-sell and introduce additional items with the sale (eg. “Do you want fries with your order?”)? Brainstorm your options and estimate your new average sale figure. Write this down.
Step #4: Increase your Transaction Frequency. How can you increase the number of times your customers will buy from you in a given period? How can you bring them back to your business on a more frequent basis? How can you keep in contact with your clients? Do you have a contact program? Why not – it is the most effective way to ensure that you are in contact with your customer base? Do you collect contact details? Do you have a loyalty program? Again, write down your options and estimate the impact on the number of transactions.
Step #5: Calculate your new NEAT. Simply multiply your new N x E x A x T to get an estimate of your potential new profit. How does it compare to your current profit levels? Is it worth an investment of time and resources to grow to this level?
Step #6: Prioritise and Action Plan. Given that most business have limited resources of capital and labour, you won’t be able to do everything on your NEAT lists. What are the 3 most important things that you need to do based on the NEAT Analysis? Select the 3 that will have the biggest impact and develop action plans to implement the solutions.
Next Steps
Do the NEAT Analysis This is simple to do. Even if you don’t have accurate figures use the NEAT concept as a basis for improving your figures.
Develop a Contact Program for your Customers and prospects as a matter of priority. This is an essential tool for any business and usually has a very quick payback period and develops long term relationships with your customers.
Contact your MindShop facilitator if you need to ask any questions or need some assistance in developing a NEAT view of your business.
by Russell Cummings | Aug 7, 2010 | Business Tips, Marketing, Planning, Strategy
What is Marketing?
Marketing is a term used to define a whole range of functions within a business and is expressed in a whole range of contexts. So exactly what is marketing?
If we pare back the rhetoric, marketing is simply the strategies we employ to move our products/services from us to the client profitably. Marketing is the process of converting prospects to customers.
It is much more than just advertising and promotion. Marketing also includes: understanding who is your target market; what is your competitive advantage; what are your product, pricing and distribution strategies as well as promotion & advertising. It is the combination of these factors that determines the effectiveness of your marketing programs.
If we think in these terms it becomes obvious we need to review and expand effort into these strategies during tough times.
The Sales Conveyor Belt
In order to survive we must maintain momentum with our sales. Think of the sales effort as a long conveyor belt of “prospects” being loaded one end and sales unloading (completed) at the other. There are some losses along the way so that not every prospect becomes a customer.
The more raw material (prospects) we can load the more opportunity we have to create sales. In some cases the more prospects being delivered the more selective we can be about whom we want to convert into a sale.
If we stop loading the conveyor belt with prospects, even for a short period, how long must we wait before the next batch are loaded and arrive to us ready for conversion into sales?
It will vary greatly from one type of industry to another however the research is clear and cites five times as the average number of contacts that need to be made with a prospect before they are likely to be getting close to conversion. And this figure relates to prospects who actually need the service anyway!
A prospect is quick to say “No!” which to the seasoned sales person actually means “not yet”. The industry averages are that the average sales person stops selling after 2 “No’s” and the average customer will buy after 5 offers or contacts.
So the loading of the conveyor must go on, especially in tough times.
This however can be difficult when profit and cash flow figures are constantly moving our focus toward expenditure reductions rather than expansion. This environment provides us the opportunity of being creative with our strategies to maintain volume prospects and therefore sales conversions in tough times.
How diverse is your promotions strategy?
Advertising is expensive and alone is not the most efficient way to secure prospects. So where can we boost our promotional or prospect gathering efforts without necessarily increasing expenditure?
Rule one in business, and therefore marketing, is to attack with an integrated plan.
This means that any promotional activity you plan must leverage off another. For example if you intend running an industry seminar as a means of adding value to your customers while raising your company profile, what support activities will you engage to maximise the effect? Advertising, direct mail, press releases? What will be the next major activity you will use to leverage off the success of the seminar?
Develop a Contract Program
Even a simple contact program woven into your promotional plan will greatly assist in maintaining volume onto the conveyor.
What is a contact program? It is a simple system for maintaining the profile of your company in the mind of the client and prospect. There are 5 simple steps to creating a contact program:
Group your customers into A, B, and C class customers by defining the characteristics that make a great customer and scoring each customer against this criteria. It might include: Spending level, fit with your strategic direction, fit with your Company culture, length of relationship, potential for growth in sales, etc. A Class are your very best customers and is where you should be focusing your internal marketing efforts.
List all the potential contact activities that you could have including: visits, phone calls, mailings, newsletters, special offers, etc.
For each Customer class decide what level of contact you will have for each activity. For example: All customers will get your newsletter. A Class customers will get a visit once per annum. B Class customers will get a Customer Service call once per annum. Only A & B Class customers will get access to special offers. A Class customers will get invited to a special event at your business.
Check that you have met the 90-Day rule. This is a basic business rule that says that each contact needs to be contacted every 90 days at a minimum.
Letting contact lapse later than 90 days will mean that you will disappear from your customers conscious thought. This is a basic rule that should never be broken. At a minimum maintain the 90 day rule with your A class customers.
Systematise your contact program. Lock it into your annual program and plan ahead for items like newsletters, offers and special events.
How do I create a contact system?
You can buy all sorts of Contact Management Software or it might be as simple as creating a client/prospect card with that persons details. By creating a 1 to 12 file each card can be filed according to the month of their next contact. Make sure you record all details and that you set up systems to collect Customer details in your business.
Because you have recorded the type of contact made previously you can easily pickup on what was discussed or send something that hits to previous conversations. This way you are adding value to the client while achieving your goal.
Your type of contact can be as diverse as your imagination and might include such things as birthday cards, industry stats, tender opportunities, client referrals.
Once a contact is made you nominate the time ahead for the next contact and simply file the card into that month.
Every month you can select the cards from the corresponding month and make contact. Its that simple. It can be useful to start a collection of information and ideas that can be used as part of your contact program.
Of course technology allows you speed up this process however for me the manual system is great as my 1 12 card box with Contact Program emblazoned across the front sits on my desk staring at me so I dont forget the importance of continually loading the conveyor.
If you would like to investigate some of the software options for Contact Management or CRM (Customer Relationship Management) then some of the more popular software titles are: ACT!2000, MAUS CRM, and Maximiser.
Conclusions
Marketing is as diverse as the many definition surrounding it suffice to say that no sales equals no business so think creatively about ways to boost your efforts in tough times.
Tough economic times provide the opportunity for the focused to put distance between themselves and their competition. Revisit your strategic plan, crank up your promotional effort and get that conveyor humming with prospects.
by Ross Holding
Next Steps
- Review your Marketing. Convert it to a one Page plan so that you can manage it effectively.
- Develop a Marketing. If you don’t have a Marketing Plan (or you really need to give it a “big rework”) – Develop a plan now! Don’t wait until its too late! Our on-line Marketing & Sales Training program will help you develop and apply a marketing plan to your business in less than 8 weeks. Click here for more information. Alternatively, contact your MindShop Coach.
- Develop a Contact Program to keep feeding your Sales conveyor. This is a relatively simple task. Contact your Mindshop Facilitator for more information or enrol in our on-line Marketing & Sales Training Program.
by Russell Cummings | Aug 6, 2010 | Business Tips, Marketing, People, Sales
For many businesses, the period of strong growth that has preceded the downturn, meant that sales skills and management did not get the attention that they deserved. As the economy slows, competition for scarce resources increases and sales are no back on the agenda – the shoe is now firmly on the other foot!
Selling in difficult times It is worth noting some key points raised by Neil Rackham (of SPIN Selling fame) in his article: “Selling tactics for difficult times”
There are several other reasons why business managers don’t plan:
- Only 50% of sales people have sold in difficult times – if you have a young sales force then this proportion will be much higher;
- In an economic downturn, sales cycles (from start to close) are typically 40% longer;
- Many people believe that in tough times, customers buy on price – this is a fallacy as most customers will buy on value, not price;
- Research has shown that during difficult times, customers will buy safety i.e.. the offering with the lowest risk. Often the perception is that the lowest risk option is to stay with the “status quo” i.e.. the current product, service and/or provider;
- Committees are often involved in making economic decisions in difficult times and group decision making usually favours lower risk;
- Buyers also realise that their decisions will come under more scrutiny in tougher economic times.
- This means that businesses and sales people will need to adjust their strategies in order to compete effectively and to survive in a depressed economy.
Sales Survivors
Rackham’s research indicated that many sales people struggle to adjust to the “new rules” of the downturn (just as many business owners and managers struggle). There is also a group that will adapt and survive (even thrive) in an economic downturn.
In his article, Rackham outlined the key characteristics of “the Strugglers” and “the Survivors” based on research undertaken in previous downturns. This is summarised in the table below.
| Strugglers |
Survivors |
| More calls, more demos |
Focused on best opportunities |
| Poor planning |
Good preparation and planning |
| Just a “talking brochure” |
Asks good questions |
| Shorter calls |
Longer/deeper calls |
| Nervous/ rushed |
Confident / In control |
| Low sales conversions |
High sales conversions |
Interestingly, research has shown that a key factor in the buying decision for customers was the “confidence” of the sales person.
Mike Boyle (sales guru from www.banjargroup.com.au) calls this “Sales Swagger” and it is an essential ingredient for good sales performance. Are your sales people confident when they sell? How can you help them to build confidence in themselves, your pricing and your products and services?
Improving your Sales Force
In a second article, Rackham expouses 5 top tips for building a world class sales force:
There are several other reasons why business managers don’t plan:
- Sales Supervisors are the key to success – lift the level of supervision not the level of sales person. You don’t need better sales people -you need better sales supervision;
- Fewer accounts = more sales – Research has shown that dramatic improvements in sales can come from reducing the number of opportunities that a salesperson will focus on by up to 30%. It’s the quality not quantity approach!
- Create Value – Your sales people must become “value creators” or “problem solvers” rather than “talking brochures”.
- Coaching brings results – ensure that your team has support at all levels from manager to supervisor to sales person. Effective coaching can often provide that external sounding board and third party accountability that can help to improve results.
- Integrate marketing and sales – There are usually 2 camps in most businesses: Marketing and Sales – and they are often at war! As they are both involved in revenue generation (at least that’s the plan!) to have them working independently is a great loss. Spend the time to set common targets, integrate teams and improve communication.
- However, in my experience, in many businesses there is only one camp because “marketing” is usually missing – not because they are integrated. Often businesses have a “marketing department” but it doesn’t do any marketing (apart from a Yellow Pages ad and new business cards) because their primary role is sales, not marketing. By not calling “a spade, a spade”, there is no focus on sales and performance usually suffers.
In conclusion, now is the time to look hard at your Sales Team. Are they “Sales People” or “Order Takers” ?
Make the changes necessary in sales management and systems and especially make sure that you and your team become “Problem Solvers” and sell the value behind what you do.
by Russell Cummings | Aug 5, 2010 | Business Tips, Leadership, People
The first list is from Warren Bennis, a professor of Business Administration at the University of Southern California and the best selling author of “On Becoming a Leader” and many other books on leadership.
Warren Bennis’s Ingredients for Leadership
| Concept |
What it means |
| Guiding Vision |
You have a clear concept of what you want to do —
professionally and personally |
| Passion |
You love what you do |
| Integrity |
You know your strengths and weaknesses and are true to your principles |
| Trust |
You have earned people’s trust |
| Daring |
You are willing to take risks |
| Curiosity |
You want to keep learning |
Our experience is that the strongest attribute that a leader can have is a clearly defined vision and the ability to communicate that vision and get your staff and community to be willing followers and allies to you in achieving that vision.
Source: Warren Bennis, On Becoming a Leader.
Henry Ford, Walt Disney, Sir Winston Churchill and Martin Luther King all had the ability to communicate their personal vision.
Martin Luther Kings famous speech expressing his dream is well worth repeating.
1. “I say to you today, my friends, that in spite of the difficulties and frustrations of the moment I still have a dream. It is a dream deeply rooted in the American dream.
2. I have a dream that one day the nation will rise up and live out of the true meaning of its creed: ” We hold these truths to be self-evident: that all men are created equal.”
3. I have a dream that one day on the red hill of Georgia the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.
4. I have a dream that one day even the State of Mississippi, a desert state sweltering in the heat of injustice and oppression, will be transformed into an oasis of freedom and justice.
5. I have a dream that my four children will one day live in a nation where they will not be judged by the colour of their skin but by the content of their character.”
How many of us could articulate our vision to our staff as effectively as that?
Now we will visit Stephen Covey’s list of Leadership characteristics.
Stephen Covey’s Eight Discernable Characteristics of Principal-Centered Leadership
| Characteristics |
What it means |
| Continual learning |
Seek training, take classes, listen, ask questions |
| Service orientation |
See life as a mission, not as a career |
| Radiate positive energy |
You are cheerful, pleasant, happy, optimistic, positive, enthusiastic and hopeful |
| Believe in other people |
Don’t label, don’t overreact, don’t carry grudges or prejudge people |
| Synergize |
You are productive and “smart working” |
| Lead a balanced life |
You are temperate, wise, sensible, physically active, socially active, and well read |
| See life as an adventure |
You are courageous, unflappable, totally flexible explorer |
| Balance your physical, mental, emotional, and spiritual characteristics |
You engage in exercise, reading, writing, creative problem solving, you pray, meditate, and watch what you eat |
Source: “Principle-Centered Leadership” by Stephen Covey.
Now you can rate yourself against the issues that have been highlighted above. As in all these things there are no definitive right or wrong attributes that fit great leaders.
Peter Drucker, known as a great respected authority on leadership and still active in coaching and teaching the subject in his nineties stated that there are no set fundamental traits for great leaders.
We are all individuals, however in my opinion the key issues are to be able to “command and not demand respect” and to be able to listen effectively and have empathy for the other persons point of view. Its all about relationships.
Article written by Bill Winter, Mindshop Facilitator
by Russell Cummings | Aug 4, 2010 | Business Tips, People
How to build trust, initiative, responsibility and ownership
Many people refuse to delegate to others because they feel it takes too much time and effort and they could do the job better themselves. But effectively delegating to others is perhaps the single most powerful “high leverage” activity there is. High leverage, in this case, is all about spending your time on activities that directly relate to achieving your personal & business goals.
Transferring responsibility to other skilled and higher trained people enables you to give your energies to other high-leverage activities to which you are best suited.
Delegation means growth, both for the individuals and for your business. Most Small Business Owners who have watched their business grow and develop in the initial stages find it difficult to “let go”, but most choose delegation after they realise they do can’t do it all by themselves any longer.
Stewardship delegation focuses on results instead of methods. It gives people a choice of methods and makes them responsible for the results. It takes more time and patience in the beginning, but it will save a lot of time in the long run.
Stewardship delegation involves a clear, up-front mutual understanding and commitment regarding expectations in five areas:
1. Desired Results
Create a clear, mutual understanding of what needs to be accomplished, focusing on what, not how. Focus on the results, not the methods. Spend time. Be patient. Visualise the desired result. Have the person see it, describe it, get them to feel it. Make a quality statement of what the results will look like and by when they will be accomplished.
2. Guidelines
- Identify the parameters within the staff member should operate;
- Keep them as few as possible;
- Include restrictions so that they don’t violate traditional practice and values;
- Identify the failure paths so they don’t reinvent the wheel;
- Let people learn from your mistakes, so everyone saves time;
- Keep the responsibility for results with them – to do whatever is necessary within the guidelines.
3. Resources
Identify what resources are available to them. Who will support them? What are the human, financial, technical or organisational resources that are available to them?
4. Accountability
Set up the standards of performance that will be used in evaluating the results and the specific times when reporting and evaluation will take place.
5. Consequences
Specify what will happen, both good and bad, as a result of the evaluation. This would include: financial rewards, promotion, job assignments, responsibility; and effect of non performance, dismissal etc
Trusting others to do the job and the Five Levels of Initiative
One of the reasons why people find it difficult to delegate fully, is they are afraid the job won’t get done to their satisfaction. The key here is to identify the level of initiative the person is able to be entrusted with before deciding how to delegate.
Also, in any job, there may be areas that are absolutely critical to the success of the project or task that require a lot of experience. Parameters can be agreed upon to ensure that a lower level of initiative is required (ie 2,3 or 4).
There are five levels of initiative to consider.
1. Wait till told
This is the lowest level of delegation. This is the “Gofer” situation which might involve a new employee with very little experience. They typically need constant supervision to learn the ropes.
2. Ask – before you do anything
As the employee becomes familiar with their job, they begin to take initiative. However, they still need affirmation on what they can do, but not how.
3. Recommend
Employees are able to assess the situation to provide recommendations in order to get the job done. Confidence grows in they ability to handle the task appropriately and you can give them more freedom in developing their own ideas as to how to achieve the desired results.
4. Do It – report back immediately
If it is not critical that actions be approved before hand then ratifying the decision will ensure that corrective action can be taken soon after the event.
5. Do It – report routinely
This is the highest level of delegation where employees are given plenty of scope and freedom to decide how to achieve the desired results. Typically leaders of teams are at this position of responsibility and have demonstrated their ability to make good decisions.
~Trust ~
Trust is the highest form of human motivation. It brings out the very best in people. But it takes time and patience and necessarily involves training and developing people so that their competency can rise to that level of trust.
The key is to develop the individual by entrusting them with higher and higher levels of initiative when they are ready to do so.
Next Steps:
Good Reading: If you would like to find out more about how to communicate effectively with your employees and others, we recommend Stephen Covey’s Seven Habits of Highly Effective People.